Multiple bank lending induces borrowers to take too much debt
when creditor rights are poorly protected; moreover, banks
wish to engage in opportunistic lending at their competitors’
expenses if borrowers’ collateral is sufficiently risky. These
incentives lead to credit rationing and posit
ive-profit interest rates, possibly exce
eding the monopoly level. If banks share
information about past debts and seniority vi
a credit reporting systems, the incentive
to overborrow is mitigated: interest and
default rates decrease; credit access improves if the value of co
llateral is not very volatile, but worsens otherwise. Recent
empirical studies report evidence consist
ent with these predictions. The paper also
shows that private and social incentives
to share information are not necessarily aligned.
JEL classification
: D73, K21, K42, L51

Multiple bank lending induces borrowers to take too much debt
when creditor rights are poorly protected; moreover, banks
wish to engage in opportunistic lending at their competitors’
expenses if borrowers’ collateral is sufficiently risky. These
incentives lead to credit rationing and posit
ive-profit interest rates, possibly exce
eding the monopoly level. If banks share
information about past debts and seniority vi
a credit reporting systems, the incentive
to overborrow is mitigated: interest and
default rates decrease; credit access improves if the value of co
llateral is not very volatile, but worsens otherwise. Recent
empirical studies report evidence consist
ent with these predictions. The paper also
shows that private and social incentives
to share information are not necessarily aligned.
JEL classification
: D73, K21, K42, L51